Despite recent reports in the local media, banks have denied a halt in loans due to the reported rise in interest rates.
Alireza Qeitasi, secretary of the State Banks Coordination Council, in a talk with IBENA rejected reports on the aversion of banks to lend saying that lending policy is based on bank resources.
"Banks have not stopped paying loans," Qeitasi stressed.
He referred to the 18% growth in banks' resources since the beginning of the fiscal year last March and said, "Banks' total outstanding loans also have increased by 18% in the same period."
According to the senior official, "Rejection of a loan application by a bank should not be interpreted as a halt in lending by the banking system as a whole. Nevertheless, lenders obviously need to consider their internal policies for better management of their resources."
He added that banks have made no changes in lending rates and loans are offered at the same rates approved by the Money and Credit Council (MCC).
Earlier this month, media reports said some state banks had started offering higher interest rates on deposits even though the Central Bank of Iran has not yet approved the increase.
A report by EcoIran Web TV said some state-owned banks had raised interest by up to 25%. Both state and private banks also were charging between 24%-25% on loans from the previous 18%.
The MCC, the top decision-making body of financial and monetary markets is expected to endorse the higher rates. Former CBI chief Ali Salehabadi in the final days of his office last month had spoken about the possibility of higher rates.
The newly-appointed CBI chief, Mohammad Reza Farzin, has made known that he supports the move to raise deposit rates. EcoIran TV quoted an informed source as saying earlier that the regulator had decided to increase interest on deposits by 5%.
In mid-2020 the MCC increased interest rates on one-year maturity deposits by 1 percentage point to 16%, on two-year deposits the rate was set at 18%. For short-term deposits with 3-month maturity it was hiked by 2 percentage points to 12%.
Mounting Pressure
Iranian banks have come under increasing censure across the sociopolitical and economic spectrum for their sheer lack of transparency, inefficiency, mismanagement and failure to put public money where the mouth is -- lending to cash-strapped SMEs and manufactures and underpin production.
However, regarding rates banks argue that it “must rise in tandem” with the high and rising inflation to make it attractive to savers. As per the MCC approval, the rate on loans must not exceed 18%.
Banks paid an estimated 23,312 trillion rials ($66.02 billion) in loans in the first seven months of the current fiscal year (ends in March), registering 47.2% growth on the same period last year.
The CBI said on its website that individual borrowers accounted for 7,468 trillion rials ($21.15 billion) or 32% of the loans during the period and the major part ($44.8b) went to businesses.
Loans to individuals increased by 55% year-on-year, and to companies it was 43.8% higher.
The report reflected on lender performance in allocating microloans, i.e. loans worth 2 billion rials or less. Banks processed 4,855 trillion rials ($13.7b) in microloans during the seven months -- 39.4% higher on the same period last year.
Credit was to the tune of 867 trillion rials ($2.45b), posting 116.8% increase on the corresponding period last year.
Total loans per applicant higher than 2 billion rials posted 87% growth. Observers say that the growing demand for housing loans can be the reason behind the jump in lending.
According to CBI data, total outstanding loans, both non-performing and performing, climbed to 11,672.8 trillion rials ($33.06 billion) reaching 47,143.6 trillion rials ($133.5b) by October 22 -- 32.9% higher from the same period last year.
Lenders have been ordered to continue lending in the Qarzol-Hasanah (interest-free microcredit) schemes despite rising concern over its detrimental impact on bank finances.
An estimated 1,080 trillion rials ($3.22b) loans has been given to low-income people, namely to bolster youth marriage and childbirth and support citizens wanting to rent a home.
This is while, senior bank and economists have routinely censured the Majlis for imposing extra burden and hefty obligations on banks to keep lending beyond their ability and capacity.
